BASF posts higher sales and profits, is optimistic about 2013

4:07 PM MST | March 1, 2013 | —Natasha Alperowicz in Ludwigshafen

Bock (r.) and Engel: BASF eyeing growth this year.

BASF reported significantly higher sales and earnings for fourth-quarter and full-year 2012, and expressed optimism about 2013. Addressing the media in Ludwigshafen last week, BASF chairman Kurt Bock said that the company exceeded its 2011 record levels in sales and Ebit, and “once again earned a substantial premium on the cost of capital.” This was achieved despite a challenging environment with overall economic growth significantly weaker than was expected at the start of 2012, he says. “Growth in worldwide chemical production, excluding pharmaceuticals, slowed from 3.8% to 2.6%... [and] the emerging markets in Asia showed markedly weak growth in the first half of the year. The upswing in demand expected for the second half of the year failed to materialize,” Bock said.

Fourth-quarter Ebit before special items of €1.8 billion ($2.4 billion) was 18% above the year-earlier quarter, and sales were 9% higher, at €19.6 billion. The higher Ebit was mainly due to “significantly higher volumes in oil and gas, as well as improved earnings in polyurethanes and construction chemicals,” the company says.

BASF’s sales for the full year were 7% higher, at €78.7 billion, and Ebit before special items was up 5%, at €8.9 billion. The oil and gas, and agricultural solutions segments achieved new records, but the chemicals business was weaker than in 2011 and lower than anticipated at the beginning of 2012, Bock said.

Higher sales were mainly a result of increased demand in the agricultural solutions segment and the natural gas trading business as well as continuous production of crude oil in Libya. But volumes in the chemicals business—including the chemicals, plastics, performance products, and functional solutions segments—declined 3%.

Net income was below the level of 2011, partly because of the higher earnings contribution from oil and gas, and with it significantly higher taxes. Gains from the sale of BASF’s share in K+S (Kassel, Germany) in 2011 were predominantly tax-free. Fourth-quarter net income was down 13.4%, to €980 million, and for the whole of 2012 net income was down 21.2%, to €4.88 billion.

Bock, responding to questions from journalists, said that BASF is looking at ways to take advantage of cheap shale gas in the United States. BASF is already building a world-scale formic acid plant at its integrated site at Geismar, LA, taking advantage of the low natural gas prices in the country. The company is examining other investment opportunities there, Bock says.

BASF reaffirmed its commitment to the automotive sector, in which it plans to capture a higher share of the global market. Hans-Ulrich Engel, CFO, said that in 2012, 12% of BASF’s sales were to the automotive industry, including battery materials, coatings, and plastics.

The company, meanwhile, plans to invest €4.5 billion this year. BASF increased its R&D expenditure in 2012 by 9%, to €1.7 billion. This year’s increase is likely to be lower, about 5%, Bock said in an answer to CW’s question.

The company anticipates a 3.6% increase in global chemical production this year, supported by stronger growth in emerging markets. BASF’s outlook is based on a forecast for world economic growth of 2.4% and for growth in global industrial production of 3.4%. BASF anticipates growth in chemicals output of just 0.3% in Europe in 2013, following a contraction last year; of 1.9% in the United States; 3.7% in South America; and 8.1% in Asia excluding Japan.

“We aim to grow again in 2013 and exceed the 2012 levels in sales and Ebit before special items,” BASF says. The company also aims to earn a high premium on its cost of capital. It earned a €1.5-billion premium on its cost of capital in 2012.

Bock told analysts at a separate meeting that BASF’s previously announced efficiency-improvement program is targeting an additional earnings contribution of €1 billion by the end of 2015. “For 2013, we expect the program to deliver about €300 million,” Bock said.

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